Axis Bank 1Q12: A decent quarter:: Macquarie Research

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Axis Bank
1Q12: A decent quarter
Event
 1Q12 numbers above consensus, NIM compresses further: Axis Bank
reported a 27% YoY increase in net profits to Rs9.4bn inline with our numbers
but higher than the consensus of Rs9bn. The NIM declined further by 16bps
QoQ to 3.28% due to higher term deposit costs and a decline in CASA.
Impact
 Liabilities franchise deteriorates: On a daily average basis CASA declined
by 250bps QoQ to 36.8%. The management articulated that 1Q is seasonally
weak and expect CASA momentum to improve going forward.
 A period of consolidation: As seen at other private sector banks, Axis Bank
also decided to consolidate its balance sheet in a quarter when liquidity was
tight. Deposits and advances declined 3% and 7% QoQ respectively.
 Asset quality stable: Asset quality was stable with delinquencies/slippages
at 0.8% of loans, remaining flat QoQ. Provision coverage inclusive of
technical write-offs is close to 90%.
 Fee income growth is very encouraging: What we find impressive is the
continued momentum in fee income growth. While overall fee income growth
for the sector is slowing down, Axis Bank continues to impress us on fees
owing to its diversified product suite and debt syndication abilities. Fee
income growth even this quarter was a robust 42% YoY. Retail banking
continues to deliver strong fee income growth driven by third party distribution
fees and other retail fees like cards, retail forex and remittances.
 Key conference call takeaways: 1) They are seeing a slowdown in new
project sanctions, however still believe that they can grow their loan book a
couple of percentage points faster than the system, driven by working capital
loans, retail and SME. 2) They maintained their guidance of holding NIMs in
the range of 3.25-3.50%. 3) The higher employee expenses this quarter were
due to wage inflation and new recruits and they expect employee expenses to
be 35% of overall operating expenses. 4) Slippages from restructured assets
were quite low at Rs90mn this quarter. However on a QoQ basis, outstanding
restructured assets have gone up 11% QoQ to Rs21bn and now form 1.6% of
total loans. 5) They have written back close to Rs160mn of standard asset
provisioning this quarter. 6) Corporate banking fees are high this quarter due
to higher syndication fees which tend to be lumpy at times.
Earnings revision
 No changes.
Price catalyst
 Due to research restrictions, Macquarie cannot advise its valuation on AXSB
IN at present.
Action and recommendation
 We are restricted on the stock